Financial literacy and economic literacy, as defined before, most certainly sound like concepts and ideas that should form the cornerstone of any management handbook or entrepreneurial mindset when founding, developing, or growing a business. So, why then, are so many organizations hamstrung by working capital shortages, or a lack of capital fundraising at the founding of the organization? Money, as the saying goes, makes the world go “round,” and this is certainly true when it comes to business, but many small to medium size business owners seem to not invest the time and energy necessary to develop true understanding. So, to put it simply, why should entrepreneurs invest in developing financial and economic literacy? If we have not explained it enough let’s take a second to recap some of the benefits of developing financial and economic literacy, particularly as it pertains to building a better business.
1. Financial literacy—understanding the ins and outs of financial literacy, particularly how finance can influence business decision making, puts you in a better position to make better choices moving forward.
2. Economic literacy—regulations, taxes, and other broader economic forces will, without a doubt, have a powerful effect on your business, but do you know what these forces are? More to the point, can you incorporate this understanding into how you plan for your business moving forward?
3. Bring it together—these forces, equally as important as the products, services, and marketing that you do for your business, will drive your business forward.
Let’s take a step back and examine why exactly it is important to be financially literate as you run and manage a business, and relate to something a little more tangible and understandable. If you want to become a famous musician, athlete, or artist you must not only practice, obviously, but also understand the details and specific information that is important to your selected craft. More to the point, if you would like to become a successful entrepreneur in a particular business enterprise you have to understand the nuts and bolts of operations. Whether it is a bakery, a web services organization, or a professional services company you must understand how to most effectively manage the business that you are operating. Now, in addition to understanding how to manage and operate the business, any entrepreneur or business manager must also understand how to finance these ambitions, objectives, and trade goals. As has been stated previously, and as will be emphasized throughout this text, understanding the financial effects and driving forces of the broader economy will help make you a better business manager and entrepreneur. So let’s drill down, before taking a bite of strategic theory and management, on some examples and specific ways that financial and economic literacy apply to business management, and making better decisions.
Financial Literacy
Bringing the idea of financial literacy to the real world, let’s think about how business is changing, and will without a doubt continue to change moving forward. The very idea of crowd-funding, and seeking out alternative sources of financing for projects and objectives, was a financing path that did not exist several years ago! Why wouldn’t you try to understand and take advantage of these options to help your business grow and succeed? While simultaneously learning about financing options to help your business grow, however, it is also important to remember to better utilize technology. Taking a look at an excerpt from an article that I published in January 2017 by the Commerce and Industry Association of New Jersey (CIANJ) Financial Literacy For Business it is obvious that technology, although sometimes derided as time wasting, can actually be a true value added tool for your business:
As we roll into 2017, it appears that technology is entering a new golden era, especially for individuals, entertainment, and better time management. Facebook, with over 1 billion users, represents a larger population than all but two countries, is the juggernaut of online interaction, news, and engagement. Other high profile technology companies include Twitter, Pinterest, and increasingly, Snapchat. That said, even in the face of each of these continued advances and innovations, successfully integrating technology into business operations and processes remains a challenge for businesses large and small. Whether the issue is simply that employees are on Facebook while on company time, or more serious issues related to cybersecurity, phishing, and data integrity, the underlying issue is the same. Technology has the ability to significantly improve productivity, efficiency, and increase the value delivered to internal and external users. That said, it is also important to recognize the reality that technology can detract from business productivity, employee attentiveness, and accuracy of products and services delivered to the customers and clients of the organization. A challenge, therefore, as we move into 2017 is the following: how can organizations and management professionals make the best use of technology for their businesses?
The debate around technology, customer privacy issues, and the ability of an organization to make better decisions from increased amounts of customer information is unable to decrease in tenacity moving forward. A more important point to remember and to keep in mind is that by gathering more information about your customers, a business is able to more effectively allocate existing financial resources. Say that a business is trying to decide what changes to make to a website to help increase the click-through rates, but does not want to waste time and financial resources developing unnecessary options. Put simply, how can the business turn a higher percentage of visitors to a business website from mere visitors to paying customers?
Better utilization of technology, and the analytics that are possible with superior information, can be used in the following manner to help the business grow:
1. Map out, whether graphically or statistically, current click through rates and try to ascertain the path that leads to the click through.
a. In layman’s terms, use better technology to understand the path that customers take who turn from visitors into paying shoppers
2. Logically and systemically test incremental changes to the design of either a desktop oriented website or a mobile-first platform. Either way, small changes can and should be rolled out over time, and the effects of these changes should be monitored on a continuous basis.
a. For example, placing the “checkout” or “look at your cart” button at different locations on the site can change the odds of customers clicking through to purchase.
b. Another possible option would be to change the color scheme of certain pieces of the website—does red make customers more likely to click through—use analytics to find out!
3. Build the critical path! After doing the analysis of current shopping and click through habits of existing customers, the management team has all of the information they need to improve business performance.
a. If you want to make something better or improve current performance you first have to know what the current situation actually is, and not just what perception of the reality is by management.
Financial Literacy and Technology
I think we all know that the dollars spent on technology, whether technological services or technological gadgets, can easily exceed budgets and expectations, but that does not mean this has to also apply to your business or idea. Technology and the increased digitization of business at large continue to certainly be a driving force in businesses of all sizes and in all industries. Let’s think this through and talk about the ways in which financially savvy managers can leverage technology to boost online presence, attract new customers, and gather improved information on existing customers.
1. Simple steps such as setting up a Facebook, Twitter, and (depending) an Instagram of Pinterest account provide several benefits:
a. Setting up these accounts is free of charge
b. Doing so develops a mobile first online presence
c. For many customers, particularly millennials or Gen-Z consumers, if a business does not exist online, it does not exist.
2. Building a website is simpler and more straight forward than ever before, with services like Wix, Weebly, and Wordpress providing hosting, design layout, and engagement statistics for free, or a nominal fee.
a. At this point you can, pretty much, teach yourself how to put together a serviceable website over a weekend, and for very little financial outlay.
3. Becoming a more technologically sophisticated company is not an inherently difficult proposition. Think out it, you already have organized a business and have attracted customers for your products and services—how hard can using a little bit of technology really be?
Analytics and Strategy
Technology gives a business the ability to expand into new markets, develop new products and services, and the ability to do so in a cost effective manner. When building a strategic plan for the organization, whether in terms of operational efficiency or financial planning, getting access to information and analyzing this data are essential aspects of the strategic planning process. It is not only important, however, to gain access to the information generated by the organization, but to also be able to extract trends and information from the organizational data. For example, if you operate a seasonal business, it would definitely benefit the success of the organization to be able to accurately analyze, forecast, and project future business results based on organizational data. The more information that you are able to gather, analyze, and report on the more efficient and productive your business will be. Increased competitiveness and success in the marketplace is a dual result of both understanding the operations and forces driving business, and the financial obligations of moving the business forward.
An article that I wrote for the CIANJ highlights some of the key aspects of technology for business development and growth:
The first place to start, from a business perspective, is to evaluate the online presence of the business – do you have a web presence? Even a relatively fundamental presence will provide the business with multiple opportunities to not only conduct analysis with current data, but to develop additional platforms moving forward. Especially in terms of attracting new business in general, and particularly important for millennial and Gen-Z clientele, the importance of having a web presence cannot be overstated. Without a quality online presence, the business might, to a large subset of customers, not exist. While there is clearly a technological aspect to building an online business profile, it is important to not get overwhelmed or confused by the number of options that are available out there. Like everything else, competition and increased consumer demand have resulted in lower costs and more variety of services that both individuals and businesses can use to establish an online presence. A few of the options for webhosting include, but are certainly not limited to, Wordpress.com, Wix, and GoDaddy.com – by the time you are reading this, there are certainly going to be other options available to you – always be sure to comparison shop and make the decision that makes the most sense for you and your business. Social media, of course, is an excellent platform from which you can contact and engage with your customers, but a high quality website forms the cornerstone of an online presence and online strategy. Even as mobile shopping and monetization increases, a solid place to start and build out the online skills of your business is an easy-to-use, and easy-to-purchase from, website. The other, mobile-first and socially-oriented platforms can always be added later.
As I hope now is abundantly clear, there are concrete business reasons to implement different types of technology, and it is possible to integrate technology in a cost effective manner! Financial considerations impact every aspect of business, management, and the choices made by entrepreneurs—this includes technology. Fortunately, as we have identified above briefly, there are various options to help an organization bootstrap its technology assets and build an economic strategy. On top of being able to implement and use technology without breaking the bank, there are quantifiable linkages between technology and better business practices. Better data lead to better insights, which will only help boost the performance of the organization moving.
It is easy, as many do, to get overwhelmed by the sheer number of options when it comes to analytics, technology, and how these analytical tools can help drive your business forward. That said, it is important to remember that the true value of analytical information, and the analytic tools that help drive these analytics are the insights they generate for the business. Making better business decisions, and helping management create better products and service for customers, both current and potential future, should be the core driving force of any business decision making. That said, and before you go to Google to figure out how to purchase the newest and snazziest technology product, you can actually accomplish quite a bit of analytics and better business planning by just making better use of Excel. I know, Excel might not be the most exciting topic to read about ever, but let’s take a peek at some of the top items business managers and end users typically want out of their information.
1. Graphics—pictures are literally sometimes worth more than 1,000 words.
2. Understandability—what exactly is this information telling me about, and why is that of any importance to me?
3. Flexibility—can this information, and the results derived from this information, be updated and tweaked to reflect changing market conditions, or is just static?
4. Share-ability—are the insights, data, and information contained within the analytic presentation going to be able to be shared, or is it limited to small group of users with access to proprietary software?
Excel has the ability to do all of these things! And this is not a sales pitch for Excel—the real point that I want to hammer home here is the following—analytics and getting really good data and information from your business does not have to cost a fortune! To the contrary, and here is the key point, by focusing on asking the right questions you can arrive at (1) quality answers in a (2) cost-effective manner. That brings us to our next topic of conversation—key performance questions.
By this point I think that most everyone has heard of key performance indicators, or KPIs, and understand the value that using such metrics adds to the business. By focusing management attention, the human and financial capital of the business, and the energy of the employees, on single areas and items the business can truly drill down and hammer on what matters. That said, and I think we can all relate to this on either a personal or professional level, sometimes the real issue is not that we do not have the information, but it is that we are not asking the appropriate questions. How can you build your business, craft a successful strategic plan, and move yourself and your business forward if you do not know what to ask? The short answer is that you cannot. So, let’s take a look at how asking better (or even … key) questions can help you make better, and most cost-efficient, decisions.
What Is the Goal of the Information?
In order to manage and run a business in cost-effective manner, you must know where the organizational information of your business is going, and who is interested in how your business is doing? Customers, local chambers of commerce, other local business owners (including the competition), and any investors who have committed funds to your business will without a doubt be interested in the data produced and disseminated by your company. Identifying which information is going to which external group is an essential step in identifying the most cost efficient method of communicating this information. A critical step in knowing which information to communicate to which stakeholders is, obviously, making sure to ask these end users which sets of data they are most interested in. While it might be tempting to deliver large amounts of detailed information, demonstrating the analytic capabilities of your business, it might actually provide a disservice to your business moving forward. Think about, if you are only interested in one particular aspect of an event or business, would you want to receive a whole host of extraneous data? So, let’s take a look at what types of information might be of most interest to certain sets of stakeholder groups:
1. Customers—pricing, product offerings, hours, and the ways that your company can engage with them. As we have discussed, it is more affordable and simpler than ever before to establish an online presence—why not use this to provide information to your customer base?
2. Chambers of commerce—this important group of stakeholders will be most interested in how engaged your business is within the community, that is, are you providing economic and societal benefits to the area? Remaining engaged and active with your local chambers of commerce is cost effective way to maintain a much needed presence among other local business owners.
3. Other business owners—depending on the specific type of business you are in, you may have several local competitors that you may not want to share too much information with. That said, there are undoubtedly other small to medium size business owners that you could collaborate with to help achieve common goals. For example, a coalition of local business, supported by the chamber of commerce (see how that works), could and should advocate for pro-business activities.
After identifying which end users, or stakeholders, would happen to be most interested in your organizational information it remains a relatively simple matter to figure out how best to communicate with them. For instance, while customers may be best engaged on social media the local chamber of commerce might be best served by e-mail or face-to-face meetings, and other local business owners might be best engaged by just walking up to them! Drilling down specifically into how all of this relates to financial literacy, it is relatively common knowledge that attracting new customers and engaging with them can be an expensive and time-consuming endeavor. Picking out on how to best engage and work with your various end users and stakeholders provides you the ability to make better informed decision to help drive your business forward.